Amazon.com Inc. is once again playing hardball in its ongoing quest for lower prices from its vendors – but this time, it’s taking on a much more well known opponent.
The world’s most popular online store is refusing to allow users to preorder certain movies from the Walt Disney Co., whose studios are responsible for such recent blockbusters as Frozen and Captain America: The Winter Soldier.
The move is part of a now-familiar tactic by Amazon, which has sought on numerous occasions to leverage its dominant position in online retailing in an effort to extract more beneficial terms from its content partners – most notably, book publishers.
The strategy is not particularly new for Amazon, which has been pressuring content partners for years to lower their prices. But in recent months, the Seattle-based company’s disputes have also grown increasingly public. An argument over e-book pricing with New York-based publisher Hachette boiled over this summer when Amazon halted preorders and delayed shipment times for several of the firm’s titles.
Amazon argues that e-books should be priced far lower than what publishers currently ask, because the digital media is far less expensive to produce.
“Just as paperbacks did not destroy book culture despite being 10 times cheaper, neither will e-books,” the company said in a statement on a website it created called Readers United, where it urges its customers to contact Hachette’s CEO directly and complain. “On the contrary, paperbacks ended up rejuvenating the book industry and making it stronger. The same will happen with e-books.”
Hachette and other publishers argue, however, that Amazon’s primary objective in demanding lower prices from its content partners is not a desire to rejuvenate the book industry, but rather to boost its own bottom line. And a growing number of authors have also criticized the online retailer for targeting certain books as negotiating tools.
“Without taking sides on the contractual dispute between Hachette and Amazon, we encourage Amazon in the strongest possible terms to stop harming the livelihood of the authors on whom it has built its business,” a newly-formed group, Authors United, said in a statement in which they also called on readers to contact Amazon CEO Jeff Bezos directly. “None of us, neither readers nor authors, benefit when books are taken hostage.”
Now, Amazon appears poised to enter a similarly polarizing situation in the world of movies.
Amazon and Walt Disney Studios did not reveal details of their dispute, and representatives for both companies did not respond to requests for comment. Previously, both companies have gotten into arguments with partners over issues such as pricing, marketing and how quickly certain titles should be made available for sale or viewing.
“The current investment cycle layers in increased technology and content costs as Amazon seeks to build itself into a complete consumption, payment and advertising platform for physical and digital goods,” BGC Financial senior technology analyst Colin Gillis said following the company’s most recent quarterly results, in which it posted losses of about 27 cents a share – far worse than the 15 cents a share analysts expected on average. Amazon’s share price dipped almost 10 per cent immediately following the earnings report.
However, Amazon continues to focus on longer-term dominance rather than shoring up its bottom line. The same strategy appears to dictate, at least in part, Amazon’s dealings with some of its content partners, as the retailer tolerates ongoing criticism in an effort to secure permanently lower prices.
“The question we see that investors need to ask themselves is: What is the value of the company given the scale of the opportunity Amazon is pursuing?” said Mr. Gillis.